Question (1) (20 Marks) Pricher Corporation's income statement for last year appears below: Sales (20,000 units).. $2,000,000 Cost of goods sold: Direct materials $500,000 Direct labor 150,000 Variable manufacturing overhead. 50,000 Fixed manufacturing overhead. 600,000 1,300,000 Gross margin. 700,000 Selling and administrative expenses: Variable... 100,000 Fixed... 300,000 400,000 Net operating income. $ 300,000 Required: Compute the following (each point is separate): a. If the company desires a net operating income next year of $600,000, how many units need to be sold? (4 Marks) b. If fixed selling and administrative expenses increase by $68,700 and unit sales will increase by 40%, what is the change in net operating income? (4 Marks) ********** Gross margin 700,000 Selling and administrative expenses: Variable.. 100,000 Fixed. 300,000 400,000 Net operating income..... $ 300,000 Required: Compute the following (each point is separate): a. If the company desires a net operating income next year of $600,000, how many units need to be sold? (4 Marks) b. If fixed selling and administrative expenses increase by $68,700 and unit sales will increase by 40%, what is the change in net operating income? (4 Marks) C. What was the degree of operating leverage last year? (4 Marks) d. Pricher Corporation's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following three alternatives were presented to the president, only one of which can be selected. Determine which of the alternatives Pricher Corporation's president should select to maximize profit. (8 Marks) 1) Reduce the selling price by $20. The marketing department forecasts that with the lower price, 50% additional units could be sold. 2) Lower variable costs per unit by $25 by using less expensive materials. Because of the difference in materials, the selling price would have to be lowered by $40, and 40% additional units could be sold. 3) Cut fixed expenses by $80,000 and lower the selling price to $90. a resu 25% additional units could be sold